13 Dec 2013 AMC - Dow continues to drag the market down

13 Dec 2013 AMC -  Dow continues to drag the market down

Market Summary 

European Markets Closing Prices

European markets are now closed; stock markets across Europe performed as follows:

·         UK's FTSE: -1.0%

·         Germany's DAX: -0.7%

·         France's CAC: -0.4%

·         Spain's IBEX: -0.9%

·         Portugal's PSI: -1.3%

·         Italy's MIB Index: -0.9%

·         Irish Ovrl Index: -1.0%

·         Greece ATHEX Composite: -0.8%

Before Market Opens

S&P futures vs fair value: +0.40. Nasdaq futures vs fair value: +4.70.
The S&P 500 futures have climbed out of the red following today's better-than-expected retail sales report (+0.7% actual versus +0.6% Briefing.com consensus).

It was a sea of red across Asia as all of the major Asian bourses ended with losses. The weakness came as markets remain on edge over whether or not the U.S. Federal Reserve will begin to scale back its bond-buying program as early as next week's meeting. India's Sensex (-1.2%) was among the leaders to the downside as sellers took control ahead of the economic data that was due out after the close. India's CPI surged to 11.2% year-over-year (10.0% expected, 10.1% previous) while industrial production (-1.8% year-over-year versus 2.0% expected) fell well short of estimates.

Elsewhere, Australia's ASX (-0.8%) lost ground despite the strong employment change data (21.0K actual versus 10.3K expected) as the unemployment rate ticked up to 5.8% from 5.7%, as expected. China's Shanghai Composite (-0.1%) and Hong Kong's Hang Seng (-0.5%) outperformed. The region saw three central bank rate decisions with Bank of Korea and Bangko Sentral ng Pilipinas holding their key rates steady at their respective 2.50% and 3.50% while Bank Indonesia surprised markets with a 25 basis point hike to 7.50%. 

·         In Japan, the Nikkei closed lower by 1.1% as sellers remained in control for a third session. Parts maker Nitto Denko was hit hard, tumbling 19.0% after lowering its guidance. Meanwhile, real estate stocks outperformed on news office vacancy rates in Tokyo continued to fall. Mitsui Fudosan and Tokyu Fudosan both added at least 1.0%. 

·         Hong Kong's Hang Seng shed 0.5% as trade fell below the 50-day moving average. Financials were among the worst performers as Industrial & Commercial Bank of China fell 1.3% and China Construction Bank lost 1.5%. 

·         In China, the Shanghai Composite slipped 0.1% as action held at two-week lows. Financials tracked their peers in Hong Kong with China Merchants Bank losing 1.9%. 

Major European indices hover in the red, continuing their recent weakness. Following yesterday's close, Italian Prime Minister Enrico Letta won confidence votes in the Senate and the Lower House, as expected. Also of note, peripheral bonds are under pressure amid reports the European Central Bank may tighten its collateral requirements. Italy's benchmark 10-yr yield is higher by four basis points at 4.09% while Spain's 10-yr also trades higher by four basis points, at 4.08%.

Economic data was limited to just a handful of releases. Eurozone industrial production fell 1.1% month-over-month (0.3% forecast, -0.2% last) while the year-over-year reading ticked up 0.2% (1.1% consensus, 0.2% prior). France's CPI was unchanged month-over-month (-0.1% expected, -0.1% last). Great Britain's CB Leading Index ticked up 0.4% month-over-month (1.7% prior). Italy's CPI fell 0.3% month-over-month (-0.4% expected, -0.4% last) while the year-over-year reading rose 0.7% (0.6% consensus, 0.6% prior). Elsewhere, the Swiss National Bank held its key interest rate unchanged at 0.00%, as expected. 

·         In France, the CAC is lower by 0.2% with growth-sensitive names leading the decline. Energy producer Technip and technology component STMicroelectronics are both down 2.1%. Defense contractor EADS outperforms with a modest gain of 0.5%. 

·         Germany's DAX trades down 0.4% as producers of basic materials lag. K+S, Lanxess, and ThyssenKrupp are all down between 1.6% and 2.5%. Defensively-geared Fresenius SE and Fresenius Medical outperform, trading higher by 1.0% and 0.5%, respectively. 

·         Great Britain's FTSE holds a loss of 0.7% as miners weigh. Fresnillo, Randgold Resources, and Vedanta Resources are all down close to 3.5% apiece. Countercyclical names outperform with National Grid and United Utilities Group up 0.7% and 1.6%, respectively.

Market Internals

Market Internals -Technical-
The Dow closed down 104 (-0.66%) at 15739, the S&P 500 closed down 7 (-0.38%) at 1776, and the Nasdaq closed down 5 (-0.14%) at 3998. Action came on slightly above average volume (NYSE 740 mln vs. avg. of 697; NASDAQ 1761 mln vs. avg. of 1762), with decliners outpacing advancers (NYSE 1304/1785, NASDAQ 1255/1313) and new lows outpacing new highs (NYSE 33/274, NASDAQ 46/49).

Relative Strength: 
Egypt-EGPT +2.02%, Biotechnology-XBI +1.53%, Cocoa-NIB +1.45%, Coffee-JO +1.39%, Cotton-BAL +1.20%, Banks-KBE +0.88%, New Zealand-ENZL +0.69%, Vietnam-VNM +0.64%, Columbia Index-GXG +0.58%, Greece-GREK +0.49%.

Relative Weakness: 
Silver-SLV -3.79%, India-INP -2.45%, Australia-EWA -2.40%, Smart Grid Infrastructure-GRID -2.30%, Gold-GLD -2.13%, South Africa-EZA -2.10%, Sweden-EWD -2.04%, Indian Rupee-ICN -1.90%, Platinum-PPLT -1.71%, Silver Miners-SIL -1.54%.

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Closing Market Summary: Major Averages Slide While Russell 2000 Outperforms
The major averages finished the session on a lower note as the S&P 500 lost 0.4% while the Nasdaq shed 0.1%. The Russell 2000, which paced the retreat on Tuesday and Wednesday, added 0.2%, trimming its December loss to 3.5%.

After spending the first half of the session in a steady retreat, the S&P 500 found technical support in the 1772 area. Upon reaching that level, the index reversed sharply, and marched back to its flat line. There was no particular catalyst responsible for the turn, but steady inflows into influential cyclical sectors paved the way for a broad-market rebound. Although the S&P 500 battled back to its flat line, final-hour selling pressured the index to a modest loss.

Financials (unch) and industrials (+0.1%) led the afternoon bounce while energy (+0.5%) joined the rally in progress.

The financial sector was buoyed by regional banks as the SPDR S&P Regional Banking ETF (KRE 39.14, +0.26) jumped 0.7%.

Elsewhere, the industrial space received support from defense contractors with the PHLX Defense Index advancing 0.5%. Transports displayed intraday strength, but the Dow Jones Transportation Average surrendered its gain into the close. The bellwether complex settled flat.

For its part, the energy sector finished near its session high even as crude oil surrendered its gain, ending flat at $97.46/bbl.

While most cyclical groups took part in the afternoon climb, the tech sector (-0.7%) struggled to keep pace with the broader market. Networking names pressured the largest S&P 500 sector after Oracle (ORCL 33.60, -0.96) was downgraded at RBC Capital Markets and Morgan Stanley. Oracle fell 2.8% while peers F5 Networks (FFIV 81.99, -2.25) and JDS Uniphase (JDSU 11.80, -0.38) lost 2.7% and 3.1%, respectively.

One tech component, Facebook (FB 51.83, +2.45), was immune to the selling pressure following news the stock will be added to the S&P 100 and S&P 500.

On the countercyclical side, the utilities sector (+0.1%) outperformed while consumer staples (-1.4%), health care (-0.8%), and telecom services (-0.4%) lagged. Notably, the health care space was pressured by managed-care names like Humana (HUM 100.47, -1.46) andUnitedHealth Group (UNH 71.01, -1.13) while biotechnology rallied. The iShares Nasdaq Biotechnology ETF (IBB 215.72, +1.53) advanced 0.7%.

Today's selling contributed to an increased demand for volatility protection, sending the CBOE Volatility Index (VIX 15.61, +0.19) to its highest close since October 15.

Trading volume was just above average as 740 million shares changed hands on the floor of the New York Stock Exchange.

Treasuries registered modest losses, sending the 10-yr yield up two basis points to 2.88%.

Initial claims for the week ending December 7 spiked to 368,000 (Briefing.com consensus 315,000) from 300,000. The Department of Labor said it is still experiencing problems with seasonal adjustment volatility, which means the headline is probably not as disappointing as it seems at first blush.

Separately, the retail sales data produced a cleaner read of things and it has painted a mostly encouraging picture for personal consumption activity. Retail sales increased 0.7% overall in November following an upwardly revised 0.6% increase (from 0.4%) in October. Excluding autos, retail sales increased 0.4% on top of an upwardly revised 0.5% increase (from 0.2%) in October.

Sales gains were pretty broad-based. The notable exceptions were gasoline station sales (-1.1%), which tracked lower gasoline prices and clothing and accessories stores (-0.2%), which tailed off following a strong 2.6% increase in October.

Also of note, October business inventories increased 0.7% after increasing 0.6% in September. The Briefing.com consensus expected business inventories to increase 0.3%.

The big upward surprise in inventories resulted from a large surprise in the previously released wholesale inventories report. Total business inventories include manufacturers, merchant wholesalers, and retailers. Typically, manufacturers (0.1%) and wholesalers (1.4%) are known prior to the release, but in this case the wholesaler data was not released until after the consensus made its prediction.

Tomorrow, November PPI and core PPI will be released at 8:30 ET.

·         Nasdaq +32.4% YTD

·         Russell 2000 +29.9% YTD

·         S&P 500 +24.5% YTD

·         DJIA +20.1% YTD

Commodities

 Closing Commodities: Gold And Silver End Sharply Lower

  Commodities ended mostly lower today, while the dollar index held gains and remains near its HoD.

  Gold and silver were the worst performers today and basically traded sideways just above its LoD this afternoon.

  Feb gold ended today's session down $32.10 at $1224.70/oz, while Mar silver lost $0.88 (or -4.3%) at $19.47/oz.

  Jan crude oil showed some strength today, but lost steam and ended the day one cent lower. Jan crude oil closed at $97.46/barrel.

  Jan natural gas futures ended tyhe session five cents higher despite a smaller-than-expected draw, as seen by from EIA inventory data figures.

NYMEX Energy Closing Prices

·         Jan crude oil fell $0.01 to $97.46/barrel

·         Jan natural gas rose 5 cents to $4.39/MMBtu

·         Jan heating oil fell 4 cents to $2.98/gallon

·         Jan RBOB gasoline fell 3 cents to $2.63/gallon

CBOT Agriculture and Ethanol/ICE Sugar Closing Prices

·         Mar corn fell 5 cents to $4.34/bushel

·         Mar wheat fell 7 cents to $6.34/bushel

·         Jan soybeans fell 18 cents to $13.26/bushel

·         Jan ethanol fell 10 cents to $1.83/gallon

·         Mar sugar (#16 (U.S.)) rose 0.27 of a penny to 20.34 cents/lbs

COMEX Metals Closing Prices- Precious metals settles notably lower, end near LoD

·         Feb gold fell $32.10 to $1224.70/ounce

·         Mar silver fell $0.88 to $19.47/ounce

·         Mar copper settled unchanged at $3.30/lbs

Treasuries

Treasuries Slide on Solid Data, Weak 30y Reopening: 10-yr: -07/32..2.887%..USD/JPY: 103.30..EUR/USD: 1.3745

·         Treasuries slid for a second session as better than expected economic data and a soft $13 bln 30y reopening ignited today's selling. 

·         The complex hovered little changed ahead of this morning's better than expected economic data, which dropped trade to its worst levels of the day. 

·         A solid retail sales report (0.7% actual v. 0.6% expected) got the selling started before the larger than expected build in business inventories (0.7% actual v. 0.3% expected) put in the day's lows. 

·         This afternoon's $13 bln 30y reopening drew 3.900% (3.890% when issued) and a weak 2.35x bid/cover as a strong indirect takedown (46.0%) helped partially offset a light direct bid (12.5%). 

·         Trade mounted a modest rally after seeing an initial retest of the lows, but the buying was short-lived as action slipped back towards its worst levels ahead of the cash close. Click here to see an intraday yields chart.

·         Outperformance at the long end saw the 30y tack on just +1.7bps to finish @ 3.897%. The yield on the long bond narrowly avoid its highest close since August 2011. 

·         More aggressive selling of 10s produced a +3.3bp advance in the benchmark yield. The 10y ended the day @ 2.877%, just below Friday's three-month closing high. 

·         Selling had the biggest impact on the 5y, which added +4.3bps and closed @ 1.532%, its highest in three months. 

·         Some traders took note of action up front as the 2y edged up +2.4bs to 0.334%, matching a one-month high. 

·         Little change could be seen along the yield curve as the 2-10-yr spread held @ 254.5bps. 

·         Precious metals saw significant selling pressure as gold tumbled -$31 to $1226 and silver shed -$0.86 to $19.50. 

·         Tomorrow's Data: PPI and core PPI (8:30).

Next Day In View 

Economic Commentary

Economic Summary: Jobless Claims spike due to seasonal adjustment issues; Retail sales top expectations; PPI tomorrow at 8:30
Economic Data Summary:

·         Weekly Initial Claims 368K vs Briefing.com consensus of 315K; Last Week was revised to 300K from 298K

·         Weekly Continuing Claims 2.791 M vs Briefing.com consensus of 2.75 M ; Last Week was revised to 2.751 M from 2.744 M

o    The initial claims level spiked to 368,000 for the week ending December 7 from an upwardly revised 300,000 (from 298,000) for the week ending November 30. The Briefing.com consensus expected the initial claims level to increase to 315,000. For the past several weeks, the Labor Department has stated that seasonal adjustment problems have made it difficult to accurately portray the layoff situation in the U.S. Until the problems go away, the claims data will likely see large up-and-down volatility. 

·         November Retail Sales 0.7% vs Briefing.com consensus of 0.6%; October was revised to 0.6% from 0.4%

·         November Retail Sales Ex-Auto 0.4% vs Briefing.com consensus of 0.3%; October was revised to 0.5% from 0.2%

o     The only real "loser" of the month was gasoline station sales (-1.1%), which was likely caused by lower gasoline prices and not from weaker demand. A large portion of the increase in sales was a result of a strong month for the auto sector. Motor vehicle manufacturers previously reported their best sales period since February 2007. That gain translated into a 1.8% increase in sales at motor vehicle and parts dealers. Excluding motor vehicle sales, retail sales rose a solid 0.4%.

·         November Export Prices Ex-Ag 0.1% (October was -0.4%)

·         November Import Prices Ex-Oil 0.0% (October was 0.0%)

·         October Business Inventories +0.7% vs Briefing.com consensus of 0.3%; September was revised to 0.5% from 0.6%

o    Typically, manufacturers (0.1%) and wholesalers (1.4%) are known prior to the release, but in this case the wholesalers data was not released until after the consensus made its prediction. The only new piece of information was that retailer inventories increased 0.8% in October, down from a 1.0% gain in September. Total business sales increased 0.5% in October after increasing 0.3% in September. The inventory-to-sales ratio remained at 1.29 for a sixth consecutive month.

Upcoming Economic Data:

·         November PPI due out Friday at 8:30 (Briefing.com consensus of -0.1%; October was -0.2%)

·         November Ciore PPI due out Friday at 8:30 (Briefing.com consensus of 0.1%; October was 0.2%)

Upcoming Fed/Treasury Events:

·         The Treasury is expected to auction off $64 bln in new debt this week. Results for each auction will be announced at 13:00. Remaining auctions include:

o    Thursday: $13 bln in 30 year bonds

Other International Events of Interest

·         Australia's ASX (-0.8%) lost ground despite the strong employment change (21.0K actual v. 10.3K expected) as the unemployment rate ticked up to 5.8% (5.8% expected, 5.7% previous). 

On other news.... 

Boeing awarded Navy contract worth up to $872.8 mln(132.96 +0.40)
Co was awarded an indefinite-delivery/indefinite-quantity contract with an estimated ceiling-price of $872,766,714 for system upgrades for F/A-18 A/B, C/D, E/F and EA-18G aircraft for the U.S. Navy and the governments of Australia, Finland, Switzerland, Kuwait, Malaysia, and Canada. Work will be performed in St. Louis, Mo. (95 percent) and China Lake, Calif. (5 percent), and is expected to be completed in December 2018. Fiscal 2014 research, development, test and evaluation, Navy contract funds in the amount of $100,000 will be obligated at time of award, none of which will expire at the end of the current fiscal year.


Currencies 

Dollar Retakes 80.00: 10-yr: -04/32..2.873%..USD/JPY: 103.20..EUR/USD: 1.3746
The Dollar Index trades on session highs near 80.25 as trade looks likely to halt its three-day losing streak. The Index hovered little changed throughout much of the overnight session before seeing a lift following this morning's better than expected U.S. economic data.Click here to see a daily Dollar Index chart.

·         EURUSD is -45 pips @ 1.3740 as its seven-day winning streak appears to be at an end. The single currency saw early strength despite eurozone industrial production missing by a wide margin, and then reversed into the red after buyers exhausted near 1.3800 resistance. A move down to 1.3600 support cannot be ruled out as little help exists until the level.

·         GBPUSD is -30 pips @ 1.6340 as trade presses minor support in the area. A quiet days for news and data out of the UK has seen action track that of the euro. A breakdown of minor support in the area sets up a test of solid support near 1.6200. 

·         USDCHF is +35 pips @ .8900 after today's Swiss National Bank rate decision went as expected. The SNB held its Libor Rate at less than 0.25% while also indicating it intends to keep its EURCHF1.20 floor. Today's bid has the pair higher for the first time in eight session, and has lifted action off its worst levels in over two years. Swiss PPI will cross the wires tomorrow. 

·         USDJPY is +85 pips @ 103.25 as trade flirts with its best close in more than five years while a breakout through this congestion area puts the 200 mma (107.30) in play. A run of disappointing Japanese data has raised expectations the Bank of Japan will look to announce further easing in the months ahead. 

·         AUDUSD is -105 pips @ .8940 as trade nears the August lows (.8900). The hard currency held little changed for much of the overnight session, but came under pressure early on in U.S. trade after Reserve Bank of Australia Governor Glenn Stevens indicated .8500 was a more reasonable level for the pair. 

·         USDCAD is +45 pips @ 1.0630 as trade has reversed into positive territory. The pair slid to almost 1.0550 in early trade, but reversed course following this morning's U.S. economic data. The defense of the 1.0700 resistance area is key for the bears.

Jason's Commentaries


The market continues to go down on its third day and failed its third candle reversal on its support. The market started with a bearish bias and continue after 11am ET. But subsequently, at 1230pm, market attempted to stage a slight reversal and having some major gyration. Volumes were rather healthy, but internals were pointing to the downside. We're having the main indices like Nasdaq, S&P500 and Russells finding support last night, however being dragged down by the Dow. I reckon the market is likely to react to the support level today. Retail Sales were higher than expected by Unemployment claims were much higher than expected. I highly doubt the unemployment claims has an effect on the market since its so volatile. The futures were up at 7.30am ET at 0.44% gain. It's a little too bullish for a cover for a Friday, I think it will likely to reverse down if the market gapped up today.

Market Call: FLAT to upside

Date: 13 Dec 2013